Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,090,000 and leased it to Mid-South Urologists Group, Incorporated, on January 1, 2024. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Lease Description: Quarterly lease payments Lease term No residual value; no purchase option Economic life of lithotripter Implicit interest rate and lessee's incremental borrowing rate Fair value of asset $ 147,871-beginning 5 years (20 quarter 5 years 16% $ 2,090,000 Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2024. Adjusting entries are recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.8 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2024.
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,090,000 and leased it to Mid-South Urologists Group, Incorporated, on January 1, 2024. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Lease Description: Quarterly lease payments Lease term No residual value; no purchase option Economic life of lithotripter Implicit interest rate and lessee's incremental borrowing rate Fair value of asset $ 147,871-beginning 5 years (20 quarter 5 years 16% $ 2,090,000 Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2024. Adjusting entries are recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.8 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2024.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of
surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from
Rand for $2,090,000 and leased it to Mid-South Urologists Group, Incorporated, on
January 1, 2024.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of
$1, FVAD of $1 and PVAD of $1)
Lease Description:
Quarterly lease payments
Lease term
No residual value; no purchase option
Economic life of lithotripter
Implicit interest rate and lessee's incremental borrowing
rate
Fair value of asset
Required:
1. How should this lease be classified by Mid-South Urologists Group and by
Physicians' Leasing?
2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians'
Leasing from the beginning of the lease through the second rental payment on
April 1, 2024. Adjusting entries are recorded at the end of each fiscal year
(December 31).
3. Assume Mid-South Urologists Group leased the lithotripter directly from the
manufacturer, Rand Medical, which produced the machine at a cost of $1.8
million. Prepare appropriate entries for Rand Medical from the beginning of the
lease through the second lease payment on April 1, 2024.
Complete this question by entering your answers in the tabs below.
Required 2
Lessee
Required 1
$ 147,871-beginning
5 years (20 quarter
5 years
16%
$ 2,090,000
Required 2
Lessor
How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasir
Mid-South Urologists Group
Physicians' Leasing
Required 3
< Required 1
Required 2 Lessee >
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